Whilst angel investors spend a lot of time conducting due diligence on potential investments, founders should be equally as critical when considering accepting money from an investor. Many compare angel investors and founders striking a deal to entering a marriage, which will last years and has its ups and downs. Whilst we have discussed frequently in previous articles, such as Your AIS due diligence cheatsheet for evaluating early-stage startups, and how angel investors should be conducting due diligence, founders should also prepare a set of questions to ask their potential future investors to ensure the success of their company. Here are 15 questions founders need to ask angel investors before taking money from them.
- Why do you choose to angel invest?
Uncover the motivations behind the investor’s decision to enter the world of angel investing. This insight can provide a deeper understanding of their goals and alignment with your startup.
- Outside of angel investing, how do you like to spend your time?
Beyond the boardroom, it’s essential to know the person behind the investor. Understanding their interests can build a more meaningful and genuine relationship.
- What else have you invested in and why?
Explore the investor’s portfolio to understand the breadth of their investments and the criteria they use for making decisions. This knowledge can help you gauge whether your startup aligns with their investment strategy.
- What is your investing process?
Gain insight into the investor’s decision-making process. Understanding their approach can help manage expectations and ensure alignment between your startup and their investment style.
- What market trends are you most excited about and why?
Delve into the investor’s curiosities around markets of interest and find out why. This question shows that you are well-informed and helps you understand whether your startup fits into their vision for the future.
- Tell me about an investment that went wrong and what you have learned from it?
Uncover the investor’s ability to learn from setbacks. This question sheds light on their resilience and adaptability, critical traits for navigating the uncertainties of the startup world.
- Not an easy question but understand the source of funds.
Addressing the source of funds is crucial. It’s a red flag if an investor is unwilling to disclose this information, and understanding their funding source helps build transparency. It could be income from work, the sale of a business, inheritance or many other legitimate reasons.
- How much do you typically invest?
Get a clear picture of the investor’s typical investment size. This information is crucial for founders looking to efficiently raise the necessary capital for their startup.
- What is your top concern about our company, team, or product?
Encourage open communication by addressing potential concerns upfront. This question not only surfaces any apprehensions but also offers an opportunity to demonstrate how your team can mitigate them.
- How do you like to be communicated with?
Establish effective communication channels by understanding the investor’s preferences. Whether it’s WhatsApp updates, monthly reports, or phone calls, aligning communication styles ensures a smooth relationship.
- How do you support your portfolio companies after the investment?
Assess the investor’s commitment beyond the investment phase. Understanding their post-investment support can provide valuable insights into the depth of their involvement.
- Can you share your past experience working with a team like ours?
Explore the investor’s familiarity with teams similar to yours. This question helps gauge their understanding of your industry and team dynamics.
- How do you handle conflicts with founders?
Addressing potential conflicts proactively is essential for a healthy investor-founder relationship. Understanding their conflict resolution approach sets expectations for navigating challenges.
- What are your expectations for Board meetings and reporting?
Establish clear expectations regarding reporting and board meetings. This ensures alignment in terms of communication and accountability. This question is only necessary if the investor will be on your Board.
- Why should I take your money compared to another angel investor’s money?
Finally, understand the unique value the investor brings. This question allows them to articulate how they can contribute beyond capital, helping you make an informed decision.
Asking these questions ensures that as a founder and angel investor, you are aligned before committing to working together and increases your chance of working well together. It also allows you to build a deeper relationship, which is useful particularly when times get challenging as a founder. Are there any other questions you think can be useful to ensure a successful founder/investor relationship?
What other great questions should founders ask investors?